Deductions from pension fund proceeds – Tribunal clarifies the “what and when”

When can an employer claim against an employee’s retirement fund? How is the deduction determined, and is it legal? Can a pay-out be delayed as a result of money owed to the employer? Many questions, as well as concerns, have been raised about employer deductions from pension funds.

Claims against pension funds are permitted by law, but as two of the latest Tribunal determinations show, it must meet strict requirements.

Section 37D of the Pension Funds Act does permit certain deductions from a member’s retirement fund benefit or pension pay-out. These are:

  • Any amount outstanding in respect of housing loans which were granted to members directly by the fund or employer in respect of a housing loan;
  • Any amount for which the fund or employer is liable in terms of a guarantee given by the fund or the employer in respect of a housing loan;
  • Damages caused to the employer by the member as a result of theft, fraud, dishonesty or misconduct, provided that:
    • The member has admitted liability in writing for the misdemeanour, or
    • Judgment has been obtained against the member in a court of law.
  • With the member’s consent, medical aid subscriptions and insurance premiums;
  • Such other deductions as the Registrar of Pension Funds may allow.

The latest Tribunal determinations resulted from disputes between employers and members. Two cases were submitted to the Pension Funds Adjudicator, but in both cases, the member was not happy with the outcome and escalated it to the Financial Services Tribunal for reconsideration.

Ms M and PFA/Employer/Provident Fund

In this case the issue before this Tribunal was whether the PFA’s determination to withhold the amount of the equivalent of R3 610.95, was permitted.

The employer accused Ms M of committing fraud and misappropriating the employers’ monies. This led to disciplinary proceedings being instituted where it was allegedly found that R3 610.95 was misappropriated.

The PFA determination was that the applicant “must wait for the conclusion of the criminal proceedings” before claiming the full withdrawal benefit. Consequently, the employer was required to prove any additional loss it incurred within 12 weeks of the determination. If the employer failed to prove the loss, then the Provident Fund was ordered to pay the applicant her withdrawal benefit (except for the loss proven by the employer) within 14 weeks of this determination.”

Ms M alleged that the PFA was incorrect in withholding the portion of her pension, particularly in the absence of any civil proceedings or criminal proceedings instituted against her.

The applicant’s grounds for reconsideration was based on –

  • The weakness of the employers case
  • The employer’s failure to prove the existence of proceedings against her

The Tribunal was in agreement with the PFA decision to withhold the money at the time of the decision, as it is consistent with section 37D (1)(b)(ii) of the Pension Act. The Tribunal also took cognisance of the fact that the PFA took into account of the following facts:

  • there was a pending criminal case against Ms M in respect of committing theft and fraud against her employer
  • the employer was, at the time, investigating the matter

However, the period in which the employer was given an indulgence has long passed. The employer failed to prove the loss, as well as the additional loss it alleged to have incurred. The Tribunal, therefore, found that there is no basis in withholding the portion of Ms M’s funds. There also appears to be no indication that there is progress in the criminal proceedings or civil proceedings.

As a result, the matter must be remitted to the PFA to reconsider its decision regarding the withheld amount of R3 160.95.

The Tribunal also found this is an instance where exceptional circumstances exist and which warrants a costs order in favour of the applicant, Ms M. The applicant is unemployed and had no legal representative, but made a point to appear and address the Tribunal. The employer, on the other hand, was absent. As a result, the Tribunal ordered the employer to be liable for the costs of the application and all reasonable costs, relating to her travel and accommodation for the purposes of attending this hearing.

Click here to download the Tribunal case.

In a similar case, the Tribunal also questioned the interpretation of the meaning of Section 37D(1)(b)(ii) of the Pension Act, as well as whether the fund can withhold the entire pension benefit of what constitutes the employer’s claim.

Click here to download the second Tribunal case.

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